Oil Markets and Geopolitics
From the headlines, supply is improving, with Libya’s steady return to service. The country claims over 500 kbd, although the sum of operator figures don’t quite add up. On the other hand, Iraq’s nearterm ramp has stagnated amidst the ongoing lag in takeaway/infrastructure. IOCs/contractors are having trouble developing bids to the most aggressive projects, due to poor terms, imperiling the next phase of several projects. Another supply-related headwind, which could skew mix and pricing next year, is that the bulk of OPEC supply growth, since 2008 but out to 2015, consists of NGLs (great for gasoline-directed markets), which do not match the mix of demand growth (diesel, not gasoline).
And the cost of fuel in Europe is moving higher. The new Russian export tax will reduce the availability of blendstock, starting next year. Add the continent’s preference for diesel to the comment above, and the marginal cost of crude slates is poised to move higher. Then, the self-imposed Round 3 of emissions controls/taxes on its refineries (and airline industry), kicks in during 2013, which will raise prices or shift demand to cleaner feedstocks (which, again, are gasoline, not diesel based – a mismatch for the local market). While “only” adding a quarter a gallon to the diesel price, some believe this, in conjunction with other factors, will encourage export from the US to Europe – a dramatic shift from recent years. Bottom line, transportation fuels are becoming more expensive and the continent’s refining industry is in serious difficulty. Shell has led peers in divesting its Euro downstream in the last several years.